If you’re like most homeowners, you have one goal in mind when considering a refinance: Lowering your monthly mortgage payment. While that’s a big deal, there may be other goals you can accomplish at the same time. Below are a few of the many reasons to consider a refinance.
The advantage is clear. The less you have to spend monthly on your housing costs, the more you have to save, invest, or increase your standard of living. There’s really no reason to be paying more than you have to for your home.
Lowering your interest rate not only lowers your payment but can drastically reduce the amount you spend in interest over the life of the loan. Dropping your interest rate just 1% can save you over $50,000 in interest over the life of a $250,000 loan.*
Now that equity is returning to American homes, cash-out refinances are an option for many homeowners. A cash-out mortgage allows you to take out a bigger loan than what you currently owe, giving you cash at closing for any purpose. Need to buy a car, pay off student loans, or do home improvements? A cash-out refinance may give you a substantial amount of cash for these purposes and much more.
If you are in a 30-year fixed mortgage, you could save a lot of money by converting to a 15-year or 10-year fixed loan. Your monthly payments may be higher, but your interest rate will likely be lower and you’ll pay a lot less in interest over the life of the loan. An average homeowner would save about $130,000 in interest by changing a 30-year loan to a 15-year term on a $250,000 loan.**
Adjustable Rate Mortgage (ARM) rates are generally lower than fixed-rate loans, which is why many homeowners opt for them. But after a few years, the rates on ARMs adjust. If mortgage rates rise, so will the rates on ARMs. While rates are low, it may be a good idea to refinance an ARM into a fixed rate, then rest assured your payment won’t be unmanageable in the future.
*Interest paid at 5.5% APR: $261,010, Interest paid at 4.5% APR: $206,016.
**Interest paid on 30 yr fixed at 4.4% APR: $198,030. Interest paid on 15 yr fixed at 3.4% APR: $68,392